State aid in €1bn fund for start-up firms urged

THE IRISH Venture Capital Association is seeking Government support to raise the €1 billion the industry will need to support Irish start-ups over the next five years.

In a report submitted to Minister for Jobs, Enterprise and Innovation, Richard Bruton, the association suggests the funding could be raised through €350 million support from the National Pension Reserve Fund, providing an incentive to pension funds to invest €500 million in venture capital, and a €150 million Government commitment to renew the Enterprise Ireland venture capital programme.

“We know everyone is looking for money from the Government but from an economic point of view this would be self-funding,” says Maurice Roche, a general partner with Delta Partners and new chairman of the association.

The association’s estimates suggest over the next decade venture-backed firms will create 21,000 direct jobs and another 21,000 indirectly, generating about €300 million annually in payroll taxes.

The 110 existing early-stage technology companies and 40 new start-ups being created each year will export about €1 billion of goods and services every year and will spend €300 million a year on research and development.

The €1 billion funding requirement is largely due to the establishment of seed funds under the Government’s bank recapitalisation programme. This has seen the creation of five early-stage funds with a combined €124 million to invest.

Bank of Ireland and AIB have provided the capital and the funds are managed by local VCs, including Delta, which administers the €17 million Bank of Ireland fund.

“The new seed funds mean its a great time to start a business in Ireland,” said Mr Roche. “It’s a great time for entrepreneurs who are looking to raise €400,000- 500,000 – it’s much better than in the UK.”

These funds are backing about 40 new companies a year, which will mean over the next five years 200 start-ups will be created. If only half of these succeed – which the association judges as raising a further round of institutional investment – they are likely to need about €100 million in funding each year (based on an average round of €5 million).

Over the past four years start-ups have raised an average of €267 million per year. Taking a conservative estimate of €200 million a year, this adds another €1 billion to the funding requirement.

The association assumes €500 million of the €1.5 billion will come from international VCs co- investing with Irish funds.

Mr Roche says the Government should consider allowing pension funds to offset investments in Irish VCs against the pension levy.